This is a blog by a former CEO of a large Boston hospital to share thoughts about negotiation theory and practice, leadership training and mentoring, and teaching.

Monday, May 17, 2010

Is your organization too flat?

My friends and colleagues Jeff Stamps and Jessica Lipnack have made an art and science of studying complex organizations. Their particular focus is on how communication within and across networks of relationships either enhances or degrades a company's ability to succeed. I recently looked at some draft work they have in progress, based on earlier work they have done. I think it is timely to share it with you (with their permission).

Jeff and Jessica raise provocative and timely questions for those of us implementing the Lean philosophy in complex hospital settings, or even for those who just are trying to manage in these kind of institutions.

In this long season of forced reorganization how are you facing complexity? Are you reducing or increasing your ability to make good decisions?

For the past thirty years or so, the prevailing wisdom about organizations is this: the flatter, the better. An inch-high and a mile wide. Smash the hierarchy. Nowhere was this more evident than in the corporate press release of the then-new CEO of BP. In October, 2007, Tony Hayward said his company was determined “to improve performance by simplifying how the company is structured and run.” While emphasizing that they have the right strategy and resources, he described BP’s problem this way: “…we are not consistent and our organization has grown too complex.”

Got your attention?

To remedy the situation, BP planed to adopt more standardized procedures and reduce the number of management layers from 11 to seven.”D What major benefit did Hayward expect to gain from redesigning the organization? “… [T]he revenue boost expected from greatly improved operational efficiency over the longer term.”

No one would argue that simplification is indeed more efficient, but here’s the rub: It’s not necessarily more effective.

Back in January, 2008, Jeff and Jessica privately predicted that Hayward’s BP reorganization would be suicidal. Now they say:

In light of the deep water explosion and gusher into the gulf that erupted on April 20, 2010, BP’s management structure is of vital, urgent interest as part of understanding what happened. Ominously, executives from BP promised Senators they would “fix” the management problems. If they do more of the same “reorganization,” they will compound an already disastrous situation.

Dogmatic global mandates, like one that says an organization must have no more than seven levels or that all managers should have ten reports (which a global financial management firm facing layoffs just executed), ignore other realities of business life. The number of levels your organization needs, or the optimal reporting span of your leaders, our research shows, is likely a function of what those units are actually doing.

Extensive study of one organization’s structure shows that some parts of organizations are shallow, others deep—depending on what they’re doing. Groups whose primary need is to communicate call for shallow structures that allow them to quickly spread messages; units engaged in complex decision-making require deeper structures that accommodate more specialization. The best structure fits the work at hand.

10 comments:

While Stamps and Lipnack are generally right in their proposition that the 'right way to organize' depends on the nature of the problems that have to be addressed, it is not clear that the specific BP failure in the Gulf was structural--too many or too few layers of management as the root organizational cause.

In fact, it is very possible that even the 'right' structure would have been undone by flawed dynamics of non-learning in the presence of aberration:

An organization missing the weak signals that something was amiss--in conditions or procedure--but continuing forward, nevertheless, as if everything was as expected.

I've added a link, below, on using information for the purpose of high speed feedback, control, and learning. I hope it proves useful.

In short, success is tricky when systems are (unavoidably) complex. You have to get the structure right to fit the situation--right depths and spans of authority, responsibility, and collaborative interaction to solve problems.

You also have to get right the dynamics that an organization structured well to learn actually does.

Finding the right organizational structure in a clinical setting can be difficult. Like you we agree hospitals need to find a structure that fits the context of the place. We talk about similar topics on our blog and Facebook (http://www.facebook.com/healthymagination).

Hi Paul:It seems that too many organizations first draw the organization structure and then decide how the works gets done, instead of the reverse, viz. find our how the works is done and then match the organization to it. The latter is more customer-centric.

Matthew: Speaking as somebody who's been trapped more times than he'd like in conference rooms with management consultants and flip charts, the problem is that almost every idea is bound to be just what some organization needs at some time or another, and the very few that every organization needs tend to cut against each other: communication vs. decisiveness; flexibility vs. focus.

The limitation of management nostrums is that you can mandate their semblance, but people end up doing what needs to be done. A flat organization that needs to focus becomes a fiction where some pigs are more equal than others... or it fails. A hierarchical organization that needs to respond creatively to a dynamic competitive environment develops informal means of exchanging ideas and information ... or it fails. That's reality, and we have to embrace it.

The challenge is the negative emotions that come with things working differently from the way they're "supposed to". Managers who feel their authority and status has been undermined. Team members who feel that their contribution has been disrespected.

Maureen:

Right on - at the risk of being trite: form follows function. We can get very caught up in the latest management mantra as a frame and unfortunately as a cover for not thinking through the actual work. I am reminded of a classic HBS Porter article that operational efficiency is not strategy. So too here, what ii is that you are trying to do should guide the approach, efficiencies can follow.

A flat approach to decision may be efficient and is a good value (close to the problem, creative voice going up, etc etc) but it can also mean that no one is accountable or worse that accountability is pushed down - especially when there is a problem.

This is cynical of course on my part and there are just as many cases where closely held decision making and management can be destructive because it is not flatter, or because it is too insular and too hierarchical - which just goes back to the point - what does the work require.

Trite is OK - when it makes sense. Not only does form follow function, but as a former hospital exec, I know that the other variable to consider is the nature of the work force doing the function: I had a multi-level structure in the business office, but a very flat structure in case management.

Reducing layers of management might certainly be cheaper, but isn’t guaranteed to be more effective for any organization. Toyota has more front-line supervision (more costly), but that added cost drives safety, quality, productivity, and employee morale. But so many companies would rather cut instead of finding ways to be more effective.In the last manufacturing company I worked for (back in 2004), they had previously eliminated the front-line level of supervision in the factories – counting up cost savings, I’m sure. They probably thought they were being “lean” although it was more an example of thoughtless cost cutting (or what I call “L.A.M.E. – see www.leanblog.org/lame ). What used to be the 2nd-level manager was now spread thin across multiple departments, having 30 to 35 direct reports as the first level of management.The company mistakenly thought that since managers are “non value added” (from a lean perspective, they were not doing direct value adding assembly work) they were expandable. So that level of management was whacked (of course higher levels of management were also “no n value adding”). The newly front-line manager had too many reports to be an effective coach, problem solver, or servant leader. Granted, the old front-line supervisors probably weren’t managing in a “lean’ manner, so maybe they were just administrative cost.Instead of cutting the level of management, the manufacturer should have invested in the training and coaching required to make them lean supervisors who could drive process improvement and engage production associates in improvement. Instead, it was cut-cut-cut. Toyota has what might seem like a management-heavy structure, but their factories are far more effective for it (Toyota’s recent quality problems are not rooted in the factory, by the way).That factory, as of early 2010, is now closed since it was deemed uncompetitive. Another example of cutting instead of fixing and improving, I suppose. Because the company couldn’t get “lean” they lost out to cheap labor overseas. Sad. Let’s hope hospitals don’t make the same mistakes about cutting levels of management (or having ineffective levels).

I doubt that anyone is honestly advocating that BP’s 11 layers of management seems like it might have been the right thing and moving away from such a structure required a great deal of study to sort out. And I also suspect that no one really thinks that removing front line supervisors is flattening an organization or finally that hospital work is so varied and complex that these things don’t have “boundaries” of reasonableness.

These questions can be made to seem so complex as to paralyze common sense approaches. My apologies in advance if I've read the above comments too harshly, but to imagine that layers of assistant department heads reporting to department heads reporting to assistant vp’s reporting to vp’s reporting to etc. may provide organizational flexibility and requires study to sort out doesn’t make sense to me. It seems obviously wrong just as red is not green.

In a hospital setting, structures get calcified over time—especially when (non-acquired) FTE growth won’t accommodate career/responsibility growth. Thus promotions to really good people serve as rewards for a job well done---guaranteeing structures get complex and layered over time.

It’s pretty easy to measure where structures are not common sensical and it’s also pretty easy to measure where front line supervision is starved. And of course different types of work require different structures. Call me shallow-Hal if you’d like, but a great first step is to find these areas and clear them out.

Jeff and Jessica state that the "complexity of decision-making" is the primary determinant of the proper "depth" of management structures. But what about the acuity of tasks that these groups are asked to handle? Certainly this is also important, as hierarchical management structures lend themselves to swift, albeit more unilateral decision-making.

As a medical student within your academic affiliate, Mr. Levy, I see interesting parallels between this and medical team hierarchies. While the formalities of seniority of residents exist in all fields within medicine, they manifest themselves differently in each field. Internal medicine and psychiatry, for example, are effectively much more "flat" due to the need for communicating complex medical information on a less urgent basis. By contrast, hierarchical systems still predominate in surgery, where urgent situations are faced more often by physicians. And yet, both could benefit from some degree of managerial restructuring, as efficiency of care is sometimes compromised in the former fields, while cross-team communication is sacrificed in the latter. Both stand to benefit with a happier medium.

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Your analysis of the reasons for "flat" vs. "hierarchical" in medicine vs. surgery are quite interesting; I hadn't thought of it that way before.The traditional explanation, which may also have some validity, is that internists are thinkers while surgeons are doers; therefore the systems follow the personalities, so to speak.The most interesting interactions of all are between internists and surgeons (this is said somewhat tongue in cheek, I confess. (:)